10 reasons why you might be rejected for a mortgage – how to increase your chances of getting accepted

If you're applying for a mortgage this year, it's important to know all the common reasons lenders say no and the best ways to get accepted

By Sara Benwell

9th January 2019, 3:21 pm

Updated: 9th January 2019, 4:52 pm

APPLYING for a mortgage is always stressful, but there are certain red flags that will make lenders less likely to give you the money.

Getting rejected can negatively impact your credit rating. This makes it even less likely that other banks or mortgage providers will stump up the cash in the future - so it's important to get it right first time.

Sorting out your credit rating is a great way to make sure your mortgage application is accepted first time

Here's ten of the most common reasons your bank could say no and how to improve your chances.

1) You have a poor credit rating

A bad credit rating means potential lenders will worry about your ability to manage debts and pay back your mortgage on time.

This means that if you have a poor score you're less likely to be accepted for a mortgage in the first place.

You may have a bad rating if you've defaulted on debt payments in the past, made lots of recent credit applications or if you're using a high percentage of your available credit - for instance if you use all your overdraft each month.

Even if you have no credit rating it can be harder to get a mortgage as lenders have no historical evidence to show you're good at paying debts off.

Getting a mortgage with bad credit is possible, but you'll usually need a large deposit or a guarantor.

How to fix it

Improving your credit score takes time, but it's well worth doing.

Not only will it improve your chances of getting a mortgage but you'll also get better rates on loans and credit cards and you'll be more likely to get a mobile phone contract.

The first thing to do is to check all three Credit Reference Agencies to find out your scores for free. Find out how to do this here.

Then there are lots of things you can do to improve your rating, such as paying down debts, using a credit-builder credit card and cutting financial ties with exes.

How to fix it

Generally speaking, the longer you stay at one address the better your chances of getting a mortgage as it shows stability.

3) You've taken out a payday loan

Payday loans are listed on your credit file for six years, even if you pay them off on time.

Some lenders may think a payday loan means you'll struggle to manage money, so they could be less likely to lend to you.

But not all lenders will turn you down just because you've used one.

How to fix it

The impact of a payday loan will very depending on which providers you speak to and how long ago you took it.

The further away it was, the less likely your lender is to care.

Make sure it's paid off in full before you apply for a mortgage and speak to a broker or independent financial adviser to see which providers will be willing to offer you the money.

If you have taken out a payday loan, the likelihood is that you'll need a bigger deposit and to borrow less.

If you are only looking for an 85 percent loan to value mortgage you're far more likely to be approved with a payday loan on your record, so consider delaying your mortgage application to save up a bigger deposit.

4) You don't earn enough

Affordability is one of the most important factors a provider considers before they decide whether or not to offer you a mortgage.

This makes sense - if it looks like you won't be able to make the repayments, a bank is less likely to hand you the money.

How to fix it

Fortunately, if you have a lower earning power, there are things you can do.

Asking for a smaller mortgage is the easiest way to improve your chances of being accepted.

Equally, a common way of increasing the amount a lender says you afford is to take the mortgage over a longer term.

For example, the repayments on a 15 year mortgage would be a lot higher than those on a 30 year mortgage, so if you are willing to take a longer term loan you'll be able to afford and borrow more.

Nicholas Sherratt, managing director of Mojo Mortgages MD said: "Pay off your debts to reduce your monthly outgoings! Lenders have a eye on how exposed you are to credit and customers monthly affordability is the most important factor in getting a mortgage approval."

What other help is out there for first-time buyers?

THERE are other schemes out there to help first-time buyers:

Help to Buy Isa - This is a tax-free savings account where the government will give you a bonus for saving towards a house. You can save £1,200 in the first month and £200 a month after that. When you buy your first home the goverment will add an extra 25 per cent tax free. You need to have at least £1,600 saved to benefit and you need to 0pen one by 30 November 2019.

Lifetime Isa - This is another government scheme that helps first-time buyers get on the property ladder. Anyone aged 18 to 39 can open one and save up to £4,000 a year. The government will pay a bonus of 25 per cent on anything you save. You can only use the money money for your first home or a pension, if you try to take it for anything else you'll lose the bonus and face a fine.
Shared ownership - Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25 to 75 per cent of the property but you're restricted to specific homes. Over time you can buy a bigger share of your house.

"First dibs" in London - London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.

Starter Home Initiative - A government scheme that will see 200,000 new-build homes in England to be sold to first-time buyers with a 20 per cent discount by 2020. To receive updates on the progress of these homes you can register your interest here.

5) You've got a small deposit

The smaller your deposit is, the less likely you are to be able to get a mortgage and the worse rates you'll be offered.

This is because your lender will have to stump up a higher percentage of the cost of the house, and may be worried about repayments.

How to fix it

It's worth taking your time to save up as much as you can to get a big deposit, and you might want to consider delaying buying for a couple of years so you can pay a higher percentage up front.

Take advantage of government schemes to boost your savings and look for lenders that specialist in offering high loan-to-value mortgages.

6) You're self-employed

If you work for yourself it can be harder to get a mortgage as lenders will worry about whether your income will fluctuate from month to month.

How to fix it

Being self-employed doesn't mean you can't buy a house, just that you need to show your mortgage providers that you are going to be able to make the repayments.

It helps to make sure you've been in business for more than three years as this gives you a stronger earnings record.

Go armed with tax statements and business accounts that show you have a steady income and if you have any future work secured it can be helpful to show contracts.

It also helps to make sure your credit score is in tip top condition.

If you're thinking of starting your own business, going part time, or moving to contract work, you should seriously consider applying for your mortgage before you make the shift as it will be a lot easier.

7) You've lived in the UK for fewer than three years

Most mortgage providers won't lend to you if you've only recently arrived in the UK, but there are some that will.

How to fix it

Make sure you've got copies of your employment contract and visa before you apply as these will prove you have permission to work and live in the UK.

Speak to a mortgage adviser or broker. They will have dealings with lots of lenders and know which ones are most likely to make you an offer.

They can also speak to the lenders on your behalf.

8) The property is above some shops

If you're buying a house above some shops it can be much harder to get a mortgage.

This is because lenders think homes above commercial property can be much harder to sell on.

As the property is the collateral for the loan, providers want to be sure that if they have to repossess it, they'll be able to sell it.

The good news is that these properties tend to be much cheaper as a reflection of how hard it can be to get a mortgage.

So you may get a bargain, but think carefully before you decide to buy.

How to fix it

If the property has a private entrance and is not accessible from the commercial property below, you'll have more chance of getting a mortgage, but you could still struggle.

If you're above anything that could be smelly or loud, such as a restaurant or pub you may find it even harder to get someone to lend.

Try specialist providers in your area, as policies can vary from lender to lender.

You might also want to consult with a mortgage broker who should be able to point you in the direction of lenders that do not rule out homes above commercial properties.

9) You're too old

Some lenders prefer to target a certain demographic, according to the Money Advice Service.

If you don't fit this criteria, you may find that a specific provider is less likely to approve your mortgage.

For instance, most mortgages are designed to last 25 years, so if you're older - lenders may worry about your ability to keep earning and paying off your debts.

How to fix it

While some of the more traditional lenders are less likely to give mortgages to older customers, some of the newer entrants to the market have more flexible rules.

Do your research on providers to find one that suits your needs, or speak to a broker to find a lender that's the right fit.

Simon Bath, CEO of When You Move said: “As we are living for longer and working longer, we are therefore likely to want to borrow for longer too. Being an older borrower, self-employed or a contract worker should not limit one’s ability to get on the property ladder.

"With a rise in flexible employment structures, high street mortgage lenders are not keeping up, whereas, alternative mortgage providers are facilitating borrowing for all ages”.

10) You've made a mistake on your application

Errors on your mortgage application form is a quickfire way to make sure you get rejected.

Preparing in advance and filling in forms in carefully can mean you're much more likely to get your money.

How to fix it

Often you'll be asked questions such as how long you've lived at previous addresses, how much your partner earns and how much debt you both have and it's really important not to guess the answers.

Make sure the address you give is the same one on your credit report and gather all the information you may need before you start an application.
Sherratt says: "Be prepared and make sure you have all your documentation ready. Can you prove your income? Can you proved your savings? Can you prove your identity?"

Answering all these questions before you start your application will reduce the chances you'll make a mistake.

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